Banco do Brasil Cuts Profit Guidance After Farm-Loan Troubles

What changed in the guidance

Brazil's state-controlled Banco do Brasil cut its profit targets and marked up expected loan-loss expenses for the year. Management lowered adjusted net income guidance to 9 billion reais to 11 billion reais, down from 18 billion reais to 22 billion reais. It also lifted the expected bill for credit costs to a range of 80 billion to 83 billion reais, previously 65 billion to 70 billion reais.

In the latest period, adjusted net income slid nearly 67% to 1.3 billion reais, landing well below the 3.09 billion reais average analyst forecast compiled by Bloomberg.

Why farm loans are the problem

Since 2024, strains have emerged in the bank's lending segment serving agricultural enterprises, a segment that makes up a sizable portion of its credit book. Debt-relief programs still haven't brought payments back on schedule, and farmers face elevated interest expenses and wider cost inflation stemming from price surges linked to conflict in the Middle East.

What investors should note

Earlier this year, shareholders signed off on increasing the bank's capital ceiling to 150 billion reais in order to give it greater flexibility amid loan-book strain, while the lender added that it did not plan to raise fresh capital right away.

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The day after President Luiz Inácio Lula da Silva's October win, the shares fell 29%, the steepest single-session drop in a period of no fewer than 32 years, while investors weighed prospects for interest-rate cuts. A little over half of the shares are owned by the Brazilian government, making the stock a familiar election trade. O Globo reported that Chief Executive Officer Tarciana Medeiros, picked by Lula, is likely to be replaced.

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